For a new online retailer just learning how to navigate the order fulfillment ecosystem, Amazon’s Fulfilled by Amazon (FBA) service comes as a blessing. For one, you only need to worry about procurement, while Amazon does the fulfillment for you. Also, FBA allows you to sell with zero direct warehouse costs.
However, as you scale, FBA can become an expensive retail channel for serious sellers looking to build a brand.
The commissions just add up and you pay out more than you need to in order to make a sale. Also, since you’re already managing inventory on other channels (offline or online), it is ideal that you do the same with Amazon and treat it as just another channel. The Merchant Fulfilled Network (MFN) – also known as Fulfillment by Merchant (FBM) is the way to do just that.
Disadvantages Of FBA- Why FBA Isn’t Always Ideal
FBA is great if you are just starting out. You have Amazon to fulfill all your shipping and delivery needs and help you put your business out there. It’s also ideal for products being sold in high volume with relatively higher margins. But, as your brand grows, FBA ends up becoming quite expensive and digging into your capital and profits a great deal.
Choosing FBA as your order fulfillment route means sending your products to Amazon – which will store them in its fulfillment centers – and allowing it to take care of everything else from there. However, there are quite a few downsides to this process.
1. It is expensive
The main disadvantage of FBA is that it works out to be fairly expensive, which is something you must consider even if you are just starting out as a retailer. Having orders fulfilled by Amazon involves paying the retail giant huge amounts as fees including:
- Fulfillment fees – the charges for picking and packing your orders, shipping and handling them, customer service, and product returns. These fees vary based on the size and weight of products.
- Monthly inventory storage fees – the charges for every item you store in an Amazon fulfillment center, which vary based on the time of the year and your daily average volume.
2. It requires you to spend on shipping to Amazon fulfillment centers
Amazon often recommends that you ship your products to multiple FBA fulfillment centers. However, this can take a massive toll on your profitability and leave you incurring losses as you will have to bear the shipping costs to different locations.
3. It leads to added charges for long-term storage
If some of your products don’t sell out quickly and you are using Amazon’s fulfillment centers for storing them, Amazon will charge you hefty fees for keeping these products throughout. Storing fees also increase a fair bit during Quarter four – October to December – and add to the existing costs.
4. It results in poor inventory visibility
Once you choose FBA, the extent of visibility you have over your products reduces drastically because your inventory is now in Amazon’s fulfillment centers. This makes it significantly hard to track and manage your inventory. And if issues arise at a particular point in time, you will need to have the inventory shipped back to you or depend on Amazon to fix the problem.
5. It restricts shipping
Amazon has fairly stringent standards for products prior to packaging to ensure they are suitable for FBA. If you do not stick to these standards, Amazon may just refuse, return, or repackage the product – for which you will have to bear the expenses. Also, once your products are at Amazon’s fulfillment centers, you will have no control over their shipping and boxing.
6. It lowers brand recall
Once you opt for FBA, your brand is less likely to be a known name as everything from shipping to delivery to returns and replacements happens under Amazon’s name. Naturally, your products will end up being perceived as being sold by Amazon instead of you.
MFN, on the other hand, works out quite well if your business is growing. You have the liberty to pack and ship your products your own way and get a say in the way your brand grows. It’s also a better option if you sell low volume, lower profit margin products.
Here’s our take on FBA vs MFN to help you make the right choice for your business.
Why You Should Choose MFN Over FBA
Choosing MFN (Merchant Fulfilled Network) to fulfill your orders on Amazon leaves the reins of order fulfillment operations entirely to you. Once you set up an Amazon seller account, you do everything from listing your products to storing, packing, and shipping them when you receive orders. This also means that you are liable for any delays, missing products, or damaged goods reaching your buyers.
While a few merchants might find this cumbersome, here are a few reasons why MFN might actually be good for you.
1. Better inventory visibility
Fulfilling product orders by yourself first and foremost gives you more control over every stage of your business. This includes increased visibility of your inventory, which makes it easier for you to reorder when stocks dip and ensure timely deliveries. Also, when you’re selling across many channels, it is always wiser to control all of the inventory yourself using a single system like Primaseller.
2. Higher availability of working capital and profits
Because Amazon is not involved in order fulfillment stages in MFN, you don’t have to lock in huge amounts of your working capital to pay the retail giant fulfillment fees and storage fees. Instead, you can direct the surplus available capital toward other crucial day-to-day functions. Having to pay lesser fees to Amazon is also likely to increase your profits per product.
Opting for MFN also gives you the chance to find a cheaper warehouse or one in close proximity to store your products, thus reducing your shipment charges. This is especially useful for managing products that have lesser profit margins.
3. Great for building your Brand
MFN is the ideal choice if you are looking to establish your relatively new brand. Because you handle every step of the order fulfillment process, buyers will get a chance to know your brand and vice versa. And naturally, if your service is good, they will come back to you and could even become loyal customers. Even while you sell on Amazon, MFN gives you better control over your product’s packaging, so you can make an impression with each sale.
Although self-packaging products may seem like added work, it could prove to be a USP, differentiating you from your competitors on Amazon. You can take it a step further by customizing receipts and adding thank you notes to your customers or even including goodies that will prompt another purchase!
Moreover, you also get access to your buyers’ database so you can send out customized emails, and even direct people to a more viable sales channel such as your web store. More intrinsic to your business is the fact that you interact directly with your customers. Therefore, you have a better perspective on their opinions and feedback.
4. A wider choice of shipping partners
Shipping through FBA is, simply put, not under your control at all. You don’t know who the last mile partner is and exactly how much you are paying for shipping alone.
This adds up cost-wise, Plus, if the customer has a negative experience with delivery and chooses to leave a bad review, the sales for the product can also fall and you will lose out on future sales as well.
When you sell through Amazon MFN, the entire order fulfillment process is in your control. You can choose which shipping partner to use for which shipment based on the relative urgency of the shipment vs. the cost factor. Moreover, you can track the shipment every step of the way until it reaches the end customer.
Returns and replacements are also far more hassle-free when you have the choice of shipping through whichever partner you like. The same partner can help pick up returns and deliver replacements back to the customer at a nominal cost agreed between just the two of you. Shipping by yourself is a great way to ensure a satisfying purchase experience.
Using a software like Primaseller adds to the delight. With a choice of over fourteen shipping partners across the world, you’re ready to go. The option of setting up order management for Amazon as one of your sales channels helps ease the process.
Before You Start
As you’ve probably realized by now, it is quite a lucrative option to sell as an FBM retailer on Amazon instead of selling on Amazon without holding any stock through FBA.
However, a few pointers will give you a better chance of succeeding through this route.
- Calculate your shipping costs before you list your products on Amazon. This way you won’t end up losing money and making smaller profits than you intend to.
- Because you will be competing with FBA sellers, your shipping must be quick and efficient so buyers purchase from you. So, ensure that your products are packaged well and reach your customers on time in the best condition. In fact, some retailers keep their fast-moving inventory packaged and ready to ship.
- Customers love free shipping. So, providing them with free shipping on standard deliveries and faster shipping at nominal costs could do wonders for your business. Indeed, no one likes to see +$xxx for shipping next to the final price. Build shipping costs into your product pricing itself.
- If you want to make your business do better, customer reviews will tell you everything you need to know. Set up surveys and ask your customers to take them when they buy from you. This will give you an insight into what’s working and what’s not.
- Read the reviews customers leave for you on Amazon and respond to them so your customers know you care. Moreover, by fixing problems as they arise, you build a better business and increase your seller rating over time.
If you’re still thinking about the extra work that FBM likely involves, know that all of the effort is directed towards gaining better control over your business. Fulfillment by Amazon is a tempting prospect and is fairly helpful for new online retailers. For growing businesses, however, Fulfillment By Merchant or MFN is the best way forward.